HMM puts its marker down for global status

Neil Dekker, container consultant at ClipperMaritime, assesses the big picture on the Korean carrier’s decision to reenter the Asia to North Europe trades next month.

Much has been said about Hyundai Merchant Marine’s (HMM) decision to reenter the Asia to North Europe trade in April 2018 with a small loop of sub-5,000 teu vessels. Two of the most penetrating questions that remain are:

How will this independently run service shape the future given the South Korean carrier’s membership of the 2M alliance?

Why would the carrier enter the trade at such a cost disadvantage with small ships?

Beyond these questions are also the wider aspirations of HMM for the future. With the demise of Hanjin in 2016, the presence of a strong and reliable South Korean shipping line with a global coverage for shippers is very important at both a strategic and political level.

The new weekly AEX service is an opportunity for HMM to assess the viability of a longer-term return to the key Asia to North Europe market as a vessel deployer, rather than a mere slot charterer. The core objective is to provide BCO shippers better assurances that it has the ability to cater for their shipping requirements.

A westbound Colombo call on the schedule reveals that not all available capacity is for North Europe and that HMM can focus on other routes via connections from a major transhipment hub.

The ships to be deployed are small enough that they will not have a major impact on the short-term spot freight rate market or supply/demand balance. Slot costs for HMM will be expensive, but some ships are likely to be chartered at low daily rates of well under $10,000. HMM does not need to price itself aggressively since it is an established operator in the trade and will have picked up some former Hanjin business quite naturally. The company’s annual volumes grew by 30% last year which is testament to the Hanjin dynamic, although this huge volume expansion will not be repeated in 2018. One unknown variable at present is if HMM will take up all of its existing slots from its 2M partners or indeed if Maersk and MSC choose to take more space for themselves.

The new service will also help HMM prepare for its future strategy in this trade lane. The company is poised to order a series of 20,000 teu ships from South Korean yards for 2020 delivery, but it certainly will not be able to fill these ships by itself. After the current deal with the 2M lines expires in 2020, HMM will become more attractive as a partner of THE Alliance member lines. Other partnerships may also open up.

At the same time, HMM is also quietly building up its presence in other trade lanes. It already operates three Asia to USWC transpacific services on its own and is steadily increasing its volumes to North America. Additional coverage as a vessel deployer on a joint service with Zim to the US East Coast will follow this summer and two vessels of 11,000 teu that the company recently acquired will be deployed in the Asia to East Coast South America trade.

While the company is still not in a healthy financial position and the investment in new ships will incur more debt, a crucial factor is that HMM is undertaking these decisions on a national strategic basis with Government backing. The lucrative newbuild orders will be given to major South Korean shipyards and so the wider shipping picture needs also to be considered here. Some market players may see HMM’s plans as rash and existing lines will always see a move like this as a negative, but from a South Korean perspective, there is some method.